Public Expenditure (White Paper)

Part of the debate – in the House of Commons at 12:00 am on 21 January 1970.

Alert me about debates like this

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton 12:00, 21 January 1970

My hon. Friend is right. But really the crucial issue in political life is how we spend the resources available to us as a nation. Incidentally, it has the side effect of exposing some of the nonsense that we hear daily from right hon. and hon. Gentlemen opposite and have heard again today.

As my hon. Friend the Member for Chislehurst (Mr. Macdonald) said, no one can argue that the levels of public expenditure are precisely right in economic or social terms. It is impossible to argue that because they are arbitrary figures. They are not figures which someone worked out many years ago and said, "We will arrive at 1970 at such-and-such a level of public expenditure." I think that it was my hon. Friend who referred to where it was balanced. He wondered whether the Government had decided on 3 per cent. and balanced it in that way.

Many people tell me that they cannot understand why it is that the right and left hand sides of a balance sheet always have the same figures. The reason is simple. There is a balancing figure. I will not do the Government the injustice of suggesting that they did just that, but I do not think that they would argue that the figures in the White Paper are arrived at in anything other than an arbitrary way, in my view inadequately.

Inevitably, they are a political compromise. Governments decide what they consider that the public will tolerate as a level of overall taxation and what they want as a level of public expenditure. It stems from a political fear of the consequences of too high a level of taxation. In this sense, the Government have been rather more honest than the Opposition, who want massive cuts in public expenditure which they imply are painless and, at the same time, cuts in taxation. It is difficult to see how it can be done.

The problem has been looked at in the wrong way. We are in danger of distorting the picture by starting with this compromise and the assumption that the country will not tolerate any levels of taxation of the sort that we have today. It should be the other way round. We should be deciding what standards of public expenditure the country will tolerate and whether, in education, the country will tolerate classes of 20, 30, 40, 50, or even 60. I believe that we should present to the country precisely what certain levels of public expenditure would mean. In education, should children start school at two, three, four, five, six, or seven, and if so, what would be the relative costs of each? Taking university places, how many should we provide, and what precisely will it mean to our middle classes? That is what we should be presenting to the country, rather than this argument about the over-all level of public expenditure in the general sense and the general level of taxation.

In terms of health, how many lives would be saved if we spent more on equipment and on paying our nurses and doctors reasonable salaries? Putting it another way, how many lives would be lost by limiting the level of expenditure on health to that in the White Paper? How many more kidney machines could we have? How much better a society would we have if we spent considerably more on environmental problems, pollution and the like?

Those are the sorts of issues that we should be presenting to the public. It the people were given these alternatives, we could have a genuine debate. Instead, unfortunately, one tends to get a rather bogus debate about the general question of public expenditure as opposed to taxation. It is a bogus debate, because for a man on, say, £25 a week who might, if he has a couple of children and a mortgage, get 2s. per week off his income tax, it will not be a great deal of use to him if he has to pay £1 a week more for school meals, for milk, for staying in hospital, for contributions to university expenditure and for an increased rate bill. A cut in taxation for that kind of man—the average working man on that kind of average wage—is not meaningful in terms of real income. It is real income which is crucial. That is why I say that it is a bogus argument to present it to the country as a simple issue of cutting public expenditure and taxation.

The real issue before us is the proportion of resources that we, as a nation, should be spending in the social sphere. We can then decide how it should be financed. This is what I was hoping we should hear from the Opposition today, but we got nothing.

I accept that there is a need for political compromise in this area. We must be realistic. Of course there is a need for political compromise, but we should not drift into an arbitrary figure and then, having drifted into that arbitrary figure, convince ourselves that the percentage is right. This is done all the time in political life. People decide on a particular line of argument and then go on, day after day, week after week, convincing themselves that that line of argument is right. This is what tends to happen—[Interruption.] Hon. Gentlemen opposite do neither. They sit there and, as we have had demonstrated today, tell us nothing about their views on this issue.

Socially and economically it would not be difficult to prove that the levels of public expenditure that we have today and that are proposed for the next five years are wrong as a proportion of total resources. Socially it is impossible to argue that the proportion is right whilst, for example, in education our classes are too large and the proportion of university places is too low compared with the United States. Why should we assume that our young people are less able to benefit from a university education than those in the United States? How can we argue that the percentage is right socially when we consider the situation in health and the many thousands still living in slums? We cannot therefore argue that it is socially right as a proportion. So the only argument can be that this is all that we can afford.

Is this really so? Is it all that we can afford? Even accepting the Government's assumption of a 3 per cent. level of growth—which I hope I have made clear I do not accept—should private consumption continue to grow at the same level as has been forecast in the White Paper? Until we have a much better level of public expenditure, I would argue—and I think there is an overwhelming social case for this; I will come to the economic case later—for stepping up the proportion. I go further. Even conceding the Government's case that public expenditure should grow only in line with economic growth and resources, must it grow equally at an approximate average of 3 per cent. over the next five years? There is a strong argument that it should be much higher in the early years.

Socially, in this way—nobody has disputed the social argument; I should be delighted if somebody would—we would have people living better and longer, but we would have more schools and school places and more hospitals. I therefore ask my right hon. Friends to reconsider, even inside their own figures, the way that it is being spent.

The strongest case of all is the economic one, because money not spent, for example, in 1970–71 is not just socially unfair; it is economic years lost to a better educated labour force. For example, expenditure not made in the industrial sphere, as we have learned the hard way in recent years, would be very costly indeed in terms of industrial investment.

On the question of industrial investment, the White Paper shows substantial and rapidly increasing levels of assistance to industry. For 1970–71 we see a figure of £105 million for the R.E.P. I have always made clear my opposition to the R.E.P. It is money for which we do not get an adequate return. My experience —and the figures confirm this—is that it is not justified, and from speaking to directors, and advisers to directors, on how they present the case to boards of companies, and on the way in which the investment decision is made, I find that this is very much a marginal issue, and that in most cases very little note is taken of it.

The biggest figure of all relates to investment grants. As has been said, this has risen to £590 million a year. This would be cheap socially and economically, if it did the job; if, for example, it produced more employment in the regions, and more investment both in the regions and elsewhere. But there is very little evidence that it is doing that.

I listened with great care to the right hon. Member for Enfield, West (Mr. Iain Macleod). He was not quite arguing the C.B.I. case. It seems that the right hon. Gentleman is to switch from investment grants back to investment allowances. I welcomed investment grants when they were first brought in because I thought —and I still think—that in most cases they were more readily and easily understood by managements. The right hon. Gentleman was arguing that he would switch back to investment allowances, but would not necessarily reduce the amount of public expenditure.

The right hon. Gentleman then suggested that perhaps the C.B.I. was right. He did not mention the C.B.I., but its case is that we should remove investment grants, or allowances, and substitute a reduction in corporation tax. The right hon. Gentleman did not argue that that is what he would do, but he argued that there was some case for it.

It is possible that there is something to be said for that, but the case is not proven. Recently, I read in an article that in Sweden it had been found that a reduction in that way had brought about increased investment, but it would be difficult to relate that to the situation here, and, certainly, the right hon. Gentleman did not make the position clear. I think that it is a matter of degree, and I am worried about the extent of the return on the money being provided by the Government.

However one juggles past, present and future figures of investment—and I shall not bandy figures now, whether it is 10 per cent., or slightly more, or slightly less—most investment decisions are made on a broad profit-making basis. The allowance has only a marginal effect when it comes to making a decision about investment. Nevertheless, that marginal decision can be important, and this is what I hope the report from the Ministry of Technology will show, because, apart from the direct incentive effect, there is a direct effect because of the cash flow which can be of considerable importance.

We need to be very much more discrirninatory in the way in which we hand out grants. My hon. Friend the Member for Middlesbrough, West (Dr. Bray) put the matter very well, and I do not want to go into it again now. We are giving millions of pounds to companies which would have decided to replace plant anyway. This means, to me at any rate, that we shall have to examine very much mare closely, and in a discriminatory way, the method by which we give out investment grants.

I propose to revert now to the general question of the level of public expenditure. In view of the serious economic and social cost of the expenditure which has been incurred over a period of five years, and the reduction in expenditure on education to as little as 2 per cent. in the later years, it is important to examine the Opposition's case, the case which they did not put today, but which they have put elsewhere. The case is of reducing public expenditure in certain fields; for example, in the case of farm subsidies, they would remove them. This, they will presumably concede—the right hon. Gentleman certainly would—is simply exchanging a price increase for a tax reduction and in real terms affecting adversely only people at the lower end of the scale.

Let us assume that one could cut £500 million off the total education bill. The extent that one reduces taxation by that £500 million and gives it to those people without children, those with children who are not paying much tax or are paying none, are bound to be affected adversely. In terms of real income, one is bound to affect many sections of the community.